COVID-19: FCA issues guidance relating to listed companies and recapitalisation issuances

The FCA has published a Statement of Policy which aims to clarify the position for companies seeking to raise new share capital whilst maintaining an appropriate level of investor protection

08 April 2020

This article was written by Christopher Walker.

The guidance applies from 8 April. Whilst no formal consultation will take place, the FCA welcomes feedback from stakeholders on the measures taken and views on any future actions or clarifications which would address arising risks and help to ensure the market works well. The policies regarding working capital statements and general meeting requirements detailed in the Statement and set out in the greater detail in the two relevant technical supplements (found here and here respectively) will apply until the FCA advises firms otherwise.

Smaller share issues

On 1 April, the Pre-Emption Group (PEG) published a statement about its expectations for issuances during the Coronavirus pandemic.

PEG’s statement notably:

'recommends that investors, on a case-by-case basis, consider on a temporary basis supporting issuances by companies of up to 20 per cent of their issued share capital, rather than the 5% for general corporate purposes, with an additional 5 per cent for specified acquisitions or investments, as set out in the Statement of Principles that would normally apply'.

The FCA has urged market participants to carefully review and consider PEG’s new guidance. PEG’s statement also details the key conditions that should be applied where companies are seeking this additional flexibility:

  • The particular circumstances of the company should be fully detailed, including how they are supporting their stakeholders
  • A proper consultation should be undertaken with a representative sample of the company’s major shareholders
  • As far as possible the issue should be made on a soft pre-emptive basis (i.e. that the allocation policy seeks to replicate the existing shareholder base)
  • Company management should be involved in the allocation process.

The FCA also encourages issuers to contribute to delivering soft pre-emption rights by exercising their right under Article 40(5) of MiFID delegated regulation (EU) 2017/565 to be consulted on and to direct bookrunners' allocation policies.

The FCA will monitor how the new processes are applied and whether any risks to market integrity or consumer protection arise in practice.

Share issues with a prospectus

The FCA encourages listed companies issuing new equity to recapitalise the company in response to the coronavirus crisis to use the simplified prospectus regime for secondary issues introduced under the Prospectus Regulation.

Disclosures that are not required under the simplified regime include those in relation to:

  • an operating and financial review
  • organisational structure
  • capital resources
  • remuneration and benefits
  • board practices.

Under the Prospectus Regulation, the regime is available to companies that have been admitted to trading on a regulated market or SME growth market for a minimum of 18 months. The FCA acknowledges that the regime may not be an option where the offer has a non-EU component in a jurisdiction with its own disclosure requirements (e.g. USA).

Working capital statements

The FCA notes that the uncertainty created by the Coronavirus pandemic and the economic effects of the public policy response mean that the financial modelling which normally underpins working capital statement has become particularly challenging.

In light of this, the FCA is seeking to ensure that prospectus disclosures give investors an accurate picture of the financial condition of the issuer and is setting out a different approach to working capital statements. The key points under the newly adopted approach:

  • Key modelling assumptions underpinning the 'reasonable worst-case scenario' will be permitted to be disclosed in an otherwise unqualified ('clean') working capital statement – but the assumptions may only be Coronavirus-related and must be clear, concise and comprehensible
  • There must be a statement that the working capital statement has otherwise been prepared in accordance with the ESMA Recommendations and the technical supplement to the FCA Statement of Policy on the Coronavirus crisis.

The FCA will continue to follow all other aspects of the ESMA Recommendations in determining whether to approve a prospectus, with the relevant caveats of the modelling of a 'reasonable worst-case scenario', and paragraph 114 of ESMA’s Recommendations (i.e. that the disclosure of assumptions underpinning the working capital statement is not normally acceptable). The FCA states that it will continue to work with ESMA and relevant competent authorities in Europe to agree a consistent approach where this will benefit market participants.

The FCA’s associated technical supplement fully details the working capital statement measures.

General meeting requirements under the Listing Rules

The FCA is also temporarily modifying the Listing Rules requirements in relation to general meetings on a case-by-case basis in the following circumstances:

  • Class 1 transactions (LR 10.5.1R(2))
  • Related party transactions (LR 11.1.7R)

Premium listed companies undertaking a transaction within the scope of this policy may apply to the FCA for a dispensation from the requirement to hold a general meeting.

In order to receive the relevant dispensation:

  • The issuer must have obtained or will obtain a sufficient number of written undertakings from shareholders (who are eligible to vote under the Listing Rules) that they approve the proposed transaction, and would vote in favour of any resolution to that effect at a general meeting were it to be held, to meet the relevant threshold for obtaining shareholder approval.
  • The issuer provides written confirmation to the market that it has obtained sufficient written undertakings to meet the relevant threshold to pass the resolution(s) and, subject to the dispensation being granted, is not proceeding with a general meeting. This could be via an FCA-approved explanatory shareholder circular and accompanying announcement via a regulatory information service. Alternatively, if sufficient written undertakings to meet the threshold have not been obtained at the time the circular is sent to shareholders, it could be included in a subsequent announcement.

Where issuers have provisions in place to provide for holding virtual general meetings, the FCA continues to support this as a means for gaining shareholder approval. The associated technical supplement fully details the general meeting modification measures.

MAR

MAR remains in force and ongoing compliance with the law is fully expected from companies. Access to insider information should be continually reviewed, as should the material impact and effect of ongoing events.

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